I Believe in Insurance, But....

By Mommy Donna and Kib - October 01, 2021

I am all up for growing your money. I am now in the stage where I need to prepare for my future needs, like saving up for Kib's college, retirement, and critical illness. 

I am now exploring all options available for me to grow my money. I have been asking friends and consulting bank managers for the best option to grow my money actively and passively. As you know, I have a full-time job and I also do side hustles like blogging opportunities, writing opportunities, selling stuff every now and then, and maintaining our online business, Katsa Co.

One of the things that I prepared for the future is getting life insurance with VUL and critical illness rider. Insurance advisors advised me to add up to the current insurance policy that I got, but I have to review my finances first if I can still afford to get another policy.

You see, while having life insurance is a must for everyone, it is not also easy for some to pay for it for years. The first life insurance policy that I got when I was in my 20s lapsed after four years of paying because I didn't fully understand the importance of saving for the future. Maybe I was still young at that time. I got single pay insurance nine years ago because I preferred a one-time payment instead of paying for it for years. I only got a full insurance policy four years ago when I was financially ready to pay for the insurance for 15 years.

Why did it take me so long to get an insurance policy and be serious about it? 

To be honest, there were some agents who tried to offer me insurance in the previous years, but I didn't avail of it because of a lot of reasons. First, I still couldn't afford to get a new policy since my income was not stable at that time. Secondly, I got intimidated by the amount that was quoted to me. The insurance agent didn't believe that I couldn't afford that amount and even jested that I was just being humble. Thirdly, I lost faith in the insurance. The insurance agent who offered me my first insurance policy didn't really guide me after my policy had lapsed.

Good product but bad agents.

Despite my bad experiences with insurance agents, I still opted to get insurance after the death of my father. I started to realize its importance since I'm a single mom. I do not want my son to be left behind with nothing should I pass away unexpectedly. 

Sadly, not all agents sell insurance with integrity and honesty. There are still insurance agents who do not disclose everything about insurance. They will only highlight the good points. While I understand that they are also salespeople, I just don't like that they are sometimes pushy and will make you feel that you made a wrong choice if you didn't sign up for an insurance policy.

I became a part of the insurance industry for a short time too, so don't think that I don't believe in insurance. I educated myself about the ins and outs of the industry, but sadly, I can say that it is not for me to make it a career. 

I had a short chat with a friend and we talked about finance. She mentioned that the first thing that people must learn first is to study their cash flow and budget before leaping into getting an insurance policy and investing. People should learn first how to spare an amount without being forced to do so. 

Don't get me wrong. I will still encourage people to get insurance, but get a policy when you have already established your cash flow. Insurance can be costly too, and paying it for 10-15 years is a long commitment. Be mentally and financially ready to pay for the policy that you will be getting so that your money will not go to waste. A lapsed insurance means that you are giving away your premiums to the insurance company for free. It's a loss at your end because you were not able to sustain the payments.

Again, insurance is good, but it has limitations. Let me point it one by one:

Insurance is good, but it is not your ultimate source of financial freedom in the future. There are lots of ways to grow your money, ranging from short-term to long-term financial goals. Like any other investment option, the investment component of an insurance policy depends on the market performance. It still depends on what kind of investment you chose for your insurance, so it is not guaranteed. Moreover, you can only enjoy the fruits of your labor in insurance when you paid your insurance in full and didn't withdraw any money. Meaning, insurance is considered a long-term investment plan.

Insurance is good, but do not put all your money into it. Diversify your liquid assets. Insurance is a long-term insurance plan. Diversify your assets by having short-term, mid-term, and long-term investments. 

Insurance is good, but you have to learn first how to do budgeting and managing cash flow. Before getting an insurance policy, make sure that you have good cash flow. Getting insurance is a long-term commitment, so if you do not have enough budget for that, do not commit to getting an insurance policy no matter how hard the agent convinces you and makes you feel guilty about not getting it early. Do not be pressured on getting insurance if you really cannot fulfill paying for it for a long time.

Insurance is good, but it is not always an investment. It can be also considered as an expense. For the first few years of paying insurance policy, it is an expense. Your money will not yet start to grow because, for the first three years, you are paying for the administrative charges of the company. Only a small portion of the premiums that you pay are invested. You will only start to feel the earnings on your policy from five years and up, but it still depends on the kind of funds you have put your money into it. As a policyholder, you must also be knowledgeable about the market trends. Your insurance agent will not give you tips on where to place your money, not unless you asked for their advice. 

Insurance is good, but it is not liquid. Liquidity means that you have cash that you can easily withdraw or use during emergencies and pleasure. While insurance policies promise growth in your money, you cannot easily take some of it. Withdrawing from insurance takes a lot of paperwork. It is not like you go to the bank and fill out a withdrawal slip and go home with cash. Withdrawing from your earnings from the insurance needs several days of processing. Moreover, you cannot enjoy the earnings from your insurance policy in its early years. As I've mentioned above, it takes time for your money to grow.

Insurance is good, but not all financial advisors are adept at discussing finance topics with you. Yes, not all insurance advisors are knowledgeable in discussing finance with you. Like any other professionals, insurance advisors also study to know more, and not all of them attend masterclasses to be better in their craft. There are some who already settle with what they know. Moreover, there are classes offered by the insurance companies that are paid.

Insurance is good, but the claiming process is tricky. During the process of signing up for the insurance, the advisors would make you feel that it's easy to file a claim as long as the requirements are complete. However, there are cases that the death of an individual is in question, like suicide or accident, which makes the claim a bit complicated. The beneficiaries have to provide other proofs to prove that there is no foul play. Moreover, the documents that need to be filled out for the claim are a bit complicated. 

Insurance is good, but it is not always cheap. Yes, insurance policies can be expensive if you decided to get them at a later age. That is why financial advisors tell you to get insurance while you are young. There are also cases that an individual may have additional premiums depending on the kind of lifestyle he/she has. However, there are what you call term insurance as low as Php100,000 that you can renew annually if you cannot afford full insurance from big insurance companies. You can get this from micro-insurance companies. SingLife (under GCash App) can offer insurance as low as the amount mentioned earlier. It's still better to have minimum protection than nothing.

Again, insurance is good, but I would advise you to explore different options to grow your money. I will be coming up with another blog to give you ideas on where you can invest.

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